Tax Audit is one of the nightmares for a taxpayer. Everyone wants to know how to avoid tax audits. Here are some blunders by tax payers that can help you understand what triggers an IRS audit:

Breaking the rules related to foreign accounts

The IRS has strict reporting requirements as far as foreign accounts are concerned. The law requires overseas banks to identify American asset holders and provide information to the IRS. Individuals must report foreign assets worth at least $50,000 on the new Form 8938.

Changing the business expenses

If any business is excessively applying for tax deductions due to business expense, that creates a question mark in the eyes of IRS. The agency uses occupational codes to measure typical amounts of travel by profession, and a tax return showing 20% or more above the norm might get a second look. The IRS can be picky about mixing business and personal expenses. Meals and entertainment can be allowable, but exceeding the occupational norm by a great amount invites an audit.

 Reporting all of your income

Unreported income is perhaps the easiest-to-avoid red flag and, by the same token, the easiest to overlook. Any institution that distributes an individual’s income will report it to the IRS, and the more income sources you have, the greater the difficulty in keeping tracks.

Earning more than $200,000

Higher incomes are likely to result in more complex tax returns that are more likely to contain audit triggers. More importantly, the IRS wants to maximize return on investment, something the agency gets better at every year.

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